# How to Calculate Required Rate of Return

If you have come searching for required rate of return (RRR), I assume you are either unaware of the term or you want to know more about it. Therefore, RRR is made simpler in the article below.

Divya Bichu

**Formula**

*Required Rate of Return = Risk-free Rate + Beta (Market Rate of Return - Risk-free Rate)***Calculator**

For example, if

Beta = 1.2

Market Rate of Return = 7%

Market Rate of Return = 7%

Substituting the above figures in the formula, will give you the required rate of return.

RRR = 5% + 1.2 (7% - 5%) = 7.4%

**Calculation**

*higher the investment risk, greater the investment returns, and greater the potential investment loss as well*. Joey and Ross are good friends. Joey is confused about his investment options and does not know which option can fetch him good returns. Therefore, he seeks help from Ross. Here is what Ross has to say about the investment options.

**OPTION - 1**

Risk-Free rate = 5%

Beta = 1.2

Market Rate of Return = 9%

RRR = 5% + 1.2 (9% - 5%) = 9.8%

Beta = 1.2

Market Rate of Return = 9%

RRR = 5% + 1.2 (9% - 5%) = 9.8%

**OPTION - 2**

Risk-Free rate = 5%

Beta = 1.2

Market Rate of Return = 7%

RRR = 5% + 1.2 (7% - 5%) = 7.4%

Beta = 1.2

Market Rate of Return = 7%

RRR = 5% + 1.2 (7% - 5%) = 7.4%